Senate Passes Legislation to Secure Employer Pension System
Baucus Works to Provide Stability and Confidence in Employee Retirement Plans
(WASHINGTON, D.C.) The U.S. Senate today passed pension legislation proposed by Sens. Max Baucus, Chuck Grassley, Edward Kennedy, and Judd Gregg by a vote of 86 to 9. The legislation will help ensure that the nation's employers can afford to continue making contributions to their employee's retirement plans.
The Baucus-Grassley-Kennedy-Gregg package will tie the employer contribution formula to the interest rate on long term corporate bonds for two years, instead of to the 30- year Treasury interest rate. This bill became necessary because a temporary adjustment to the interest rate used to determine what companies must contribute to their employee defined-benefit plans expired on Jan.1 of this year, leaving employers to face the prospect of having their contribution formula tied to theU.S. Treasury Department's 30-year bond, which is no longer issued.
"I am pleased by the Senate's overwhelming support of our pension legislation, which willhelp protect the retirement security of our nation's employees," Baucus said. "It's important that theHouse and the Administration move quickly on our bill to prevent additional employers fromdropping pension coverage due to rising rates. It's also vital that we bring employers who havealready been financially forced to drop coverage back on board."A recent survey found that 15 percent of defined benefit plan sponsors have frozen planssince January 1, 2001 and an additional 6 percent are actively considering freezing their definedbenefit plans.
"In this economy, employers will have a difficult time continuing to provide retirementbenefits if contribution rates jump. But even more than that, employers can't plan ahead if the ratescontinue to vary widely year to year," Baucus added. "Our bill will allow them to use long termcorporate bond rates for two years and I anticipate that we will have a long term solution in place bythen, such as the pension legislation Chairman Grassley and I introduced last year."Last September, the Finance Committee passed the Grassley-Baucus "National EmployeeSavings and Trust Equity Guarantee Act." The bill includes a set of long-term funding changes tohelp streamline the pension system and provide temporary relief for companies that are suffering.The bill will provide a temporary substitute for the 30-year Treasury rate, similar to the provision inthe bill passed today, and will also provide for the long-term replacement of the 30- year Treasuryrate with a yield curve - a conservative basis for liability measurement. Importantly, the FinanceCommittee bill also includes provisions to allow companies to put more money into their planswhen times are good.
"Today the Senate took an important step that will stem the tide of employers droppingpension coverage, but we can't take our eye off of the goal of passing common sense long-termpension legislation that protects our employees and plans for the future," Baucus said.
The pension package passed today will also reduce the amount that companies mustcontribute in "catch-up" funding to under- funded pension plans - known as Deficit ReductionContribution (DRC) Relief. The amount of DRC would be reduced by 80 percent this year and by60 percent next year for companies that were not subject to the DRC requirement in 2000. Airlinesand steel companies that were not subject to the DRC in 2000 would automatically qualify for therelief. Other employers would be eligible for relief by applying to the U.S. Treasury Department.
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